It's an indisputable fact that the best way to accumulate wealth is to invest in shares.
Research tells us that shares provide a higher return over the medium to long term than any of the other asset classes such as cash, bonds and property.
Yet a New Zealand Stock Exchange survey shows that, on the whole, we are not great investors in our own market.
The headline findings of a share-ownership survey, conducted for the exchange by CM Research, suggest that 44 per cent of New Zealanders own shares either directly or through managed funds.
This, according to exchange managing director Bill Foster, ranks New Zealand highly on an international basis.
He says that 54 per cent of Australians have some form of direct investment in shares, while the figures for the United States, Britain and Canada are 52 per cent, 40 per cent and 38 per cent, respectively.
However, when the New Zealand figures are examined more closely it becomes apparent that we are neither prudent nor major share investors.
The research shows New Zealanders don't have particularly well-diversified portfolios and the average holding is small.
Close to two-thirds of direct share owners have shares in three or fewer companies, and the average holding is a mere 4.4.
A similar survey in Australia last year showed an average holding of 6, and this was considered to be too low.
JB Were private client manager John Cobb says lack of diversification among portfolios means the risk being taken on by the investor is higher than it needs to be.
The exception would be if the shares held were in some of the listed index funds, such as AMP Asset Management's WiNZ fund (which tracks the world markets), the NZSE's TeNZ fund (which mirrors the top 10 companies in New Zealand) and Tower's Tortis Ozzy fund (which invests in the top Australian listed companies).
Mr Cobb says that to get adequate diversification an investor needs to hold between 10 and 12 stocks in various industry sectors.
Also, the survey shows that while there may be a reasonable level of participation in the market, the amount of investment is small. Almost half of all direct share owners have portfolios of less than $10,000 and about 19 per cent have portfolios worth less than $2500.
Mr Cobb says it's hard to classify these people as being real share investors.
The survey also shows that a third of share owners bought their first direct shares more than 15 years ago, and 24 per cent bought their first shares within the past three years.
While this information isn't broken down in any more detail, it is reasonable to assume that the so-called newcomers are people who have been given shares by life offices in the demutualisation process, or have taken part in the previous Government's "popular capitalism" and bought shares in assets previously owned by the state.
Auckland International Airport, Contact Energy and Capital Properties were all pitched at Mum and Dad investors.
According to brokers UBS, 30,000 retail shareholders bought 83 per cent of the Capital Properties shares.
The moribund performance of the NZSE indices, and particularly of the bigger companies, is often promoted as a reason New Zealanders don't buy into the market.
But if you look beyond the indices at individual stocks, there has been some stunning performance. Companies such as Baycorp, Fletcher Challenge Energy and Tourism Holdings have all made impressive gains recently.
The potential for good returns in the market is illustrated by what some of the fund managers are achieving.
According to research house Morningstar, the New Zealand Guardian Trust Small Companies fund has been one of the best-performing managed funds in the past year, giving investors a total return of 42 per cent.
Likewise, two of the 10 best unit trusts in the three months to June 30 were the National Bank NZ Equity Trust and AXA's Select Equities fund.
Mr Cobb says he has been tracking a portfolio of JB Were's recommended stocks for the past two years and they have returned, on average, more than 35 per cent annually.
The trend he is seeing, however, is for New Zealanders to increasingly put more of their share money overseas.
He says that at present about half the money JB Were invests into shares directly for clients goes overseas.
Again, this is a trend that has accelerated rapidly in the managed funds sector in the past 12 months.
It is often said that New Zealanders have been reluctant to buy shares following the caning they took in the 1987 sharemarket crash, and the tax breaks which are available from residential property.
However, there is a feeling that the attitude of investors is changing.
Mr Cobb says the market is booming. "I don't think I have ever seen a better time."
One of the interesting findings in the NZSE survey is that the profile of new share owners is likely to be someone who is aged between 25 and 34, female and on a lower income. Definitely not the traditional share investor.
* Philip Macalister is the editor of online money management magazine Good Returns. Good Returns provides news on managed funds, mortgages, insurance, superannuation and financial planning.
AdvertisementAdvertise with NZME.
Latest from Business
Downloads spike for app helping EV owners track road-user charges
The platform will soon launch a feature that automatically buys road-user charges.